Aussies love Auctions. It’s pretty much a Saturday sport for some. And why wouldn’t we love Auctions? It’s full of action, drama and those nerve wrecking last minute wins.
As Buyers Agents, we regularly bid at Auctions throughout Sydney on our clients’ behalf. This gives us a unique insight into the ‘games’ that are commonly played at Auctions.
On Auction day, one of the tactics commonly used by selling agents is to manufacture fake competition in absence of real competition. An example of this happened at an Auction I recently attended. I have a client who is interested in the area – but not this particular property. Never-the-less, I try to attend as many Auctions as possible to stay in touch with the market sentiment and gauge the level of competition for a particular price bracket. After all, as Buyers Agents, we regularly bid at Auctions throughout Sydney on our clients’ behalf.
I walked into the property literally as the Auctioneer was about to commence the Auction. The agent is well aware of who I am and that I have never set foot on that property. The agent knew that I would only be observing and not bidding that day.
When no bids materialised after the Auctioneer’s lively prelude, the selling agent dutifully approached several members of the crowd to give the appearance of multiple registered bidders and interested parties. When the crowd remained silent, the agent went away and came back with a Vendor Bid of $1.65 million. The property was advertised as “over $1.55 million” but that is another story!
After the Vendor Bid was placed, a registered bidder made a bid of $1.651 million. Dead silence is followed by the selling agent once again approaching the same spectators – including myself (when it was clear I was not registered).
This agent is trying to manufacture a sense of competition. In fact, with the back turned away from the only bidder, the selling agent was only making small-talk to me! The agent was whispering nonsense to me such as “What do you think of the property?” and “This is your first time here today isn’t it?” The longer the agent tries to keep up the conversation, the more nervous the only bidder got!
I see this Auction theatrics all the time and do get quite amused by it. Throughout the course of this particular Auction, the selling agent approached me at least six or seven times – despite knowing full well that I would not be bidding. What is not so amusing was that the only bidder was getting worried at the sight of competition – not realising that it was all just a bluff.
In fact, the bidder was so worried she was coaxed by the selling agent to raise her bid by $24,000 – when there was no competition at all!
It sounds ludicrous to bid against yourself, but it happens all the time. The selling agent has probably told the bidder that the property is not on the market and if she only comes up a bit, the vendor will consider selling there and then.
The selling agent puts the fear in the bidder that if the property doesn’t sell right away, they may lose the property altogether to ‘the other interested party’ across the room.
Again the selling agent goes around the room. Once again approaching me, chit-chatting this time about the home’s true value. The bidder is led to believe that there are others out there that just are not ready to bid, but who might be strong competition if the Auction is passed in.
No other bidder materialised and the property sold promptly for $1.675 million. Nice result for the selling agent and vendor given that there was only one bidder!
Before you get all riled up and pick up the phone to call the Office of Fair Trading, let’s be very clear that there is absolutely nothing illegal about creating the impression that there are more interested parties than in reality. Selling agents like to lead buyers to believe that there are other interest parties who may make offers the week after Auction but for whatever reason were not ready to bid on Auction day.
Manufacturing a sense of competition is not illegal and the selling agent did not break any laws. Savvy selling agents who are comfortable with Auctions can and will play this game. You just have to be able to spot it.
If you know of anyone who might bid at an Auction in the future, do them a huge favour and pass this article along to them.
If you’ve observed other Auction theatrics work or not work, we’d love to hear from you! Tweet us or post your comments below.
About Oliver Stier
Oliver J. Stier is the Director of OH Property Group, a leading Sydney buyers agency. He studied Quantitative Economics and Finance at Cambridge University (UK), University of Toronto (Canada) and Princeton University (USA). In addition to being a licensed real estate agent, Oliver also holds the Chartered Financial Analyst (CFA) designation.